The small businesses that sued over DHS's FirstSource III IT procurement have lost on the merits at the Court of Federal Claims. In an opinion re-issued in full on Oct. 13, 2026, Judge Edward H. Meyers upheld the department's decision to cancel the procurement and terminate its contracts. The ruling also denied bid and proposal costs to the 23 remaining plaintiffs. The case is Westwind Partners, LLP v. United States, No. 24-1504C. The court first filed the opinion under seal on Sept. 30 and re-issued it after the parties confirmed no redactions were necessary.

Judge Meyers denied the plaintiffs' motion for judgment on the administrative record and granted the government's cross-motion. The court did not decide whether the roughly $10 billion in cost avoidance DHS attached to the cancellation was accurate. A Government Accountability Office report released about four weeks earlier says it was not.

How FirstSource III Went From Protest Fight to Cancellation

DHS issued the FirstSource III request for proposals, No. 70RTAC21R00000003, in April 2021. It was a small-business set-aside for IT goods and services. The department awarded 30 IT value-added reseller (ITVAR) IDIQ contracts. Some firms won awards in more than one set-aside category, so those 30 contracts went to 15 awardees. Thirty unsuccessful vendors filed complaints at the Court of Federal Claims. The court dismissed six plaintiffs and a seventh voluntarily dismissed its complaint, which left 23.

Executive Order 14240, "Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement," came out in March 2025 while the litigation was pending. It called for moving procurement of common goods and services to government-wide contract vehicles. DHS then reviewed its contract portfolio. Its Strategic Solutions Office recommended terminating eleven agency-wide contract vehicles, FirstSource III among them. The contracting officer then cancelled the procurement and terminated the awarded contracts for convenience.

DHS justified the cancellation on redundancy. The record showed that 14 of the 15 FirstSource III awardees can be contracted with directly through other vehicles. Those include NASA SEWP and GSA schedules. The 15th is reachable through joint ventures. DHS had also been buying IT through government-wide vehicles since FirstSource II expired in September 2024. In the court's words, that experience showed those vehicles "can provide for all its needs."

Why the Court Found E.O. 14240 a Rational Basis

The plaintiffs argued that the executive order did not require DHS to cancel FirstSource III. The court agreed that it did not compel cancellation, but held that it gave DHS a rational basis for cancelling. Judge Meyers pointed to the order's own policy language. "E.O. 14240 sets the Executive's policy of 'eliminating contract duplication, redundancy, and other inefficiencies.' That clearly contemplates cancellation," he wrote.

The plaintiffs also noted that other agencies have kept their own agency-specific IT IDIQs since the order was issued. The court accepted that point but said those agencies' actions were not before it. The court also rejected the argument that DHS cancelled because the plaintiffs were about to win. The plaintiffs conceded the record contained no evidence that DHS officials considered the merits of the protests, and the court declined to assume they did.

"In the end, the court concludes that DHS had a rational basis to cancel FirstSource III," Judge Meyers wrote. Because the cancellation was not arbitrary or capricious, he awarded no bid and proposal costs.

The Disputed $10 Billion Cost-Avoidance Figure

The plaintiffs attacked the $10 billion figure DHS attached to the cancellation. The court described that number as the full contract ceiling of FirstSource III. Describing DHS's conclusion that cancellation would avoid $10 billion in costs, it said, "That number may well be high."

The court found no indication in the record that the contracting officer considered cost avoidance when she made the decision. As a result, the plaintiffs could not show that illusory cost avoidance made the cancellation arbitrary or capricious. In a footnote, the court said GAO "agrees that DHS over reported its cost avoidance related to contract cancellations." It added that it did not need to resolve that question.

What GAO Found in DHS's $10.5 Billion Claim

The footnote cites GAO-26-109096, published Sept. 3, 2026. GAO reviewed DHS contract terminations from Jan. 20 through Sept. 30, 2025. In that period DHS terminated 438 contracts for convenience. It had obligated more than $1.6 billion on them before termination and deobligated a net total of over $92 million.

DHS publicly claimed the terminations could avoid more than $10.5 billion in costs. GAO was blunt: "However, this overstates actual costs avoided for two reasons." First, the figure is the most that could have been obligated on the contracts, not what would actually have been spent. Second, if DHS continues to need the same goods and services and buys them through other contracts, those costs are not avoided but incurred through those contracts.

The second point reaches the IT contracts. GAO found that 95 percent of the $10.5 billion came from 30 terminated indefinite delivery/indefinite-quantity contracts for IT requirements, with a 10-year performance period running from fiscal 2025 through fiscal 2034. According to DHS, it obligated over $1.7 billion in fiscal 2025 through existing government-wide contracts to meet those requirements. GAO added that any further obligations for the same requirements through fiscal 2034 would further reduce actual cost avoidance. GAO's report does not name FirstSource III.

What It Means for Contractors

The ruling shows how much room an agency has to drop a contested procurement in the name of an executive-branch consolidation policy. The court did not find that E.O. 14240 mandated cancellation. It was enough that the order's policy "contemplates" it and that the agency's redundancy findings held up on the record. For protesters, an attack on the agency's numbers will not win if nothing shows the contracting officer relied on them.

Small businesses that bid on FirstSource III should expect DHS IT requirements to keep moving through NASA SEWP, the GSA schedules and other government-wide vehicles. Getting on those vehicles, directly or through a joint venture, may matter more for firms that want DHS reseller work. The court's refusal to award bid and proposal costs means the plaintiffs recover nothing for preparing proposals for a procurement that no longer exists.

The GAO report gives contractors and congressional overseers a record to cite when an agency claims savings from terminations. DHS told GAO it obligated more than $1.7 billion in fiscal 2025 alone through other government-wide contracts for the same IT requirements, so at least that much of the reported $10.5 billion was spending shifted to other vehicles rather than money saved. Firms weighing future protests should also note the court's other point: agencies that kept their own IDIQs are not setting a standard DHS had to follow.

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